O.C. venture capital investment declines

Dan Rodrigues, CEO, left, and Tom Giannulli, chief medical iInformation officer of Kareo Inc. in Irvine. The company raised $20.5 million in venture capital in the first quarter. SAM GANGWER, ORANGE COUNTY REGISTER

"Venture capital is 'right-sizing' itself," Grabow said. "The big picture is, what is the appropriate amount of capital to fund innovation for (venture capital) partners to get a return on the investments they make? It should beat the stock market, at least."

The local decline in dollars invested reflects, in part, the sagging fortunes of Irvine-based Fisker Automative, which previously received the most money from outside investors among Orange County companies. The troubled electric hybrid carmaker raised more than $1.2 billion in private venture capital. In the first quarter of 2012, Fisker received $129.7 million, one of the largest deals nationwide. And in all of last year, Fisker accounted for a third of all venture capital invested in Orange County firms.

But Fisker hasn't attracted venture investors for two quarters. The number of Orange County deals overall also declined: 11 local companies received venture capital in the first three months of 2013 compared to 15 companies a year earlier, according to VentureSource, which collects data on the venture investment industry.

The VentureSource report is one of three released this month on U.S. equity investments by venture capital funds. The other surveys are from CB Insights, an information service for private company investors, and the MoneyTree Report from PricewaterhouseCoopers and the National Venture Capital Association based on data from Thomson/Reuters. The latter two reports do not break out Orange County statistics.

Each report uses different methodology and includes similar but not exact data. For example, VentureSource does not include investments by corporations, individuals or government agencies. The MoneyTree Report does include those investments plus investment banks and foreign-based funds. CB Insights also includes investments by angel investors, state governments and incubators.

Both VentureSource and The MoneyTree Report show declines in the number of deals and dollars invested nationwide. VentureSource said 752 deals raised $6.4 billion in the first quarter, down 11 percent in both deals and dollars from the same period in 2012. The MoneyTree Report listed 863 deals totaling $5.9 billion, down 0.6 percent and 6.4 percent respectively. However, CB Insights listed 841 deals, up 7 percent from a year ago and totaling $6.9 billion, up 17 percent.

John Taylor, head of research for the National Venture Capital Association, said there are fewer venture capital funds now and the survivors have been raising less money for several years. That means they now have less money to invest in young, high-growth companies.

The association said 35 funds raised $4.1 billion in the first quarter, the fewest number of fundraisers since the third quarter of 2003. VentureSource said the money venture capital funds raised in the first quarter was a third less than funds raised a year earlier.

Having less money impacts how venture capitalists invest, said HJ Paik, director of PricewaterhouseCoopers' Southern California Emerging Company Services. They tend to invest in software companies, which need less capital than other types of businesses and are acquired or go public sooner, so the funds get their money back quicker. Biotechnology, medical device and clean tech firms, which need large amounts of money and take longer to be profitable, are getting less venture capital.

Fisker is part of that clean tech decline, Paik said. But Southern California companies still are doing relatively well in venture investments. "We don't have as many funds, but we have more angel investors and funds based outside Southern California investing here."

The MoneyTree Report said software companies nationwide raised $2.3 billion in the first quarter, 39 percent of all the money invested. Investments in biotech firms, $875 million, was 1 percent lower than a year ago; medical devices, $509 million, was down 28 percent; and clean tech, $355 million, down 61 percent.

California continues to do relatively well in attracting venture capital, according to CB Insights. California companies accounted for 41 percent of the deals and 49 percent of the money invested nationwide in the first quarter, the report found.

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